G.F. 326
CONFIDENTIAL #2
15
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35.
With approval, foreign investors may use their Renminbi earnings to purchase other Chinese products for export, provided that these products are not subject to export quota restrictions. However, this kind of arrangement implies that the foreign investors may have to trade in goods with which they are not familiar.
36.
The Chinese government has also stated that foreign exchange will be allocated to joint ventures engaged in high-technology industries or producing goods that are genuine import substitutes. In such cases, the Chinese authorities try to maintain a balance of foreign exchange earning potential among the enterprises. For instance, in Shanghai, the Bank of China bought one million dollars of US currency from a Hong Kong-Shanghai joint venture, Sakura Holiday Resort, and sold that amount to a Shanghai-US joint venture, Foxboro Company Limited, which is engaged in the manufacture of electronic process control instruments. Both transactions were settled at the official exchange rate.
37.
However, except for a few reputable firms, it is unlikely that other joint ventures can get such favourable treatment. The Chinese government often stresses that joint ventures must first try to balance their foreign exchange accounts before they can expect help from the Chinese government. Gu Ming, an official of the State Council responsible for economic legislation, was quoted in China Daily of 21.1.86 as saying that it is impossible for a developing country like China to use its scarce foreign exchange reserves to subsidize joint ventures running a foreign exchange deficit.
38.
The crux of the problem is that many joint ventures find it difficult to expand their exports. In fact, most of them set up business in China with a view to gaining access to the Chinese domestic market. In the
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